IRS warns of popular tax scams

Published: Wednesday, April 3, 2013 at 4:30 a.m.

Last Modified: Tuesday, April 2, 2013 at 4:21 p.m.

The Internal Revenue Service has released its annual “Dirty Dozen” tax scams that often peak during tax filing season, and identity theft topped the list.

The IRS recommends that taxpayers be aware so they can protect themselves against claims that sound too good to be true.

The IRS does not initiate correspondence with taxpayers through email to request personal or financial information, said Norma Messer, president of the Better Business Bureau for Asheville and Western North Carolina. This includes any type of electronic communication, such as text messages and social media channels.

“What we tell people is to check with the IRS before responding to any correspondence,” Messer said.

Combating identity theft and refund fraud is a top priority for the IRS.

“Identity theft is one of the worst in tax schemes,” Messer said. “It is something they really watch for.”

The IRS’s ID theft strategy focuses on prevention, detection and victim assistance. During 2012, the IRS protected $20 billion of fraudulent refunds, including those related to identity theft. This compares to $14 billion in 2011. Taxpayers who believe they are at risk of identity theft due to lost or stolen personal information should immediately contact the IRS so the agency can take action to secure their tax account.

If you have received a notice from the IRS, call the phone number on the notice. You may also call the IRS’ Identity Protection Specialized Unit at 800-908-4490. Find more information on the identity protection page on IRS.gov.

Taxpayers who buy into illegal tax scams can end up facing significant penalties and interest and even criminal prosecution.

Phishing

Another scam is “phishing,” which typically involves an unsolicited email or a fake website that seems legitimate but lures victims into providing personal and financial information.

The IRS does not reach out to people like that, Messer said.

Once scammers obtain that information, they can commit identity theft or financial theft. If you receive an unsolicited email that appears to be from the IRS, send it to phishing@irs.gov.

Although most return preparers are reputable and provide good service, taxpayers should choose carefully when hiring someone to prepare tax returns. Only use a preparer who signs the return they prepare for you and enters their IRS Preparer Tax Identification Number.

For tips about choosing a preparer, visit www.irs.gov/chooseataxpro.

Offshore accounts

One form of tax evasion is hiding income in offshore accounts. This includes using debit cards, credit cards or wire transfers to access those funds.

While there are legitimate reasons for maintaining financial accounts abroad, there are reporting requirements taxpayers need to fulfill. Failing to comply can lead to penalties or criminal prosecution. Visit IRS.gov for more information on the Voluntary Disclosure Program.

Refund promises

The IRS warns of scammers who prey on people with low income, the elderly and church members around the country. Scammers use fliers and ads with bogus promises of refunds that don’t exist. The schemes target people who have little or no income and normally don’t have to file a tax return.

In some cases, a victim may be due a legitimate tax credit or refund, but scammers fraudulently inflate income or use other false information to file a return to obtain a larger refund. By the time people find out the IRS has rejected their claim, the promoters are long gone.

Fake charities

Following major disasters, it’s common for scam artists to impersonate charities to get money or personal information from well-intentioned people.

They may even directly contact disaster victims and claim to be working for or on behalf of the IRS to help the victims file casualty loss claims and get tax refunds. Taxpayers need to be sure they donate to recognized charities.

False claims

Taxpayers who falsely claim income they did not earn or expenses they did not pay in order to get larger refundable tax credits is tax fraud. This includes false claims for the Earned Income Tax Credit. In many cases the taxpayer ends up repaying the refund, including penalties and interest.

In some cases the taxpayer faces criminal prosecution. In one particular scam, taxpayers file excessive claims for the fuel tax credit. Fraud involving the fuel tax credit is a frivolous claim and can result in a penalty of $5,000.

False form 1099 refund claims are scams when the perpetrator files a fake information return, such as a Form 1099-OID, to justify a false refund claim.

Promoters of frivolous schemes advise taxpayers to make unreasonable and outlandish claims to avoid paying the taxes they owe. These are false arguments that the courts have consistently thrown out. While taxpayers have the right to contest their tax liabilities in court, no one has the right to disobey the law.

Filing a phony information return like falsely claiming zero wages is an illegal way to lower the amount of taxes an individual owes. Typically, scammers use a Form 4852, which is a Substitute Form W-2, or a “corrected” Form 1099 to improperly reduce taxable income to zero. Filing this type of return can result in a $5,000 penalty.

Scammers improperly use third parties form corporations that hide the true ownership of the business, as well. They help dishonest individuals underreport income, claim fake deductions and avoid filing tax returns. They also facilitate money laundering and other financial crimes.

Misuse of trusts is another issue. There are legitimate uses of trusts in tax and estate planning but some questionable transactions promise to reduce the amount of income that is subject to tax, offer deductions for personal expenses and reduced estate or gift taxes.

Such trusts rarely deliver the promised tax benefits. They primarily help avoid taxes and hide assets from creditors, including the IRS.

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